Delta dispute may lead to Mesa Air bankruptcy

Associated Press

PHOENIX » Mesa Air Group Inc. warned yesterday that it faces a cash crunch and could be forced into bankruptcy if it can't stop Delta Air Lines Inc. from going through with a plan to cancel a service contract.

The Phoenix-based company, which operates the interisland carrier go! in Hawaii, said in a filing with the Securities and Exchange Commission that the loss of $20 million in monthly revenue from the Delta deal could lead to a cascade of defaults if it can't restructure its debt.

Mesa's filing said the Delta operations accounted for approximately 20 percent of its 2007 revenue. It also operates regional routes for US Airways and United Airlines.

Losing the deal to provide Delta regional service would cost the company an estimated $960 million over the next four years.

In addition, Mesa would be on the hook for leases for 34 regional jets that it likely would be unable to redeploy to other routes. It estimated aircraft leasing, labor and other costs at $250 million to $300 million over the next four years.

Such a scenario would lead to a cascade of defaults unless the company can restructure debt, acquire additional capital or otherwise restructure.

"In such event, the company's financial condition would require that the company seek protection under applicable U.S. reorganization laws in order to avoid or delay actions by its lessors, creditors, and code-share partners, which could materially adversely affect the company's ability to continue as a going concern," the filing concluded.

Mesa filed suit against Delta last month in an effort to prevent the company from ending its service agreements. Delta told Mesa that it was canceling its deals because of performance issues on its Freedom Airlines subsidiary, which Mesa in turn blamed on Delta's actions. A hearing is set to begin May 27 on the suit.

Last week, the airline said it would shut down subsidiary carrier Air Midwest, cutting off service to 16 small cities in 10 states because of soaring fuel prices.

Its Hawaiian carrier, go!, has struggled to make a profit and sparked a lawsuit by Hawaiian Airlines Inc. that ended with Mesa agreeing to pay $52.5 million. A similar lawsuit by the former Aloha Airlines remains pending.